Lighthouse Inn denied Chapter 11, foreclosure auction to proceed

The U.S. Bankruptcy Court in Bridgeport has dismissed an involuntary bankruptcy petition filed by former Lighthouse Inn operator Christopher Plummer, clearing the way for a foreclosure auction of the property.

Chief Judge Albert S. Dabrowski, in an opinion issued last week, agreed with the Business Loan Center LLC, holder of the Lighthouse Inn's first mortgage, that "dismissal of this case is in the best interests of creditors and the estate."

McGrath Hotels LLC had been the owner of the Lighthouse Inn before it was placed in receivership as part of foreclosure proceedings earlier this year.

Plummer filed a Chapter 11 petition against McGrath Hotels as principal in the Lighthouse Group of Connecticut LLC, which has a second mortgage on the property. The filing in September had occurred just a day before the property was scheduled to be auctioned and forced a last-minute cancellation of the much-anticipated sale of one of New London's prime pieces of real estate.

New London attorney Michael Sheehan, in arguing against the Chapter 11 filing last month on behalf of the Business Loan Center, called The Lighthouse Group of Connecticut a "debtor in bad faith." He said it was not entitled to file an involuntary petition because it is not listed as a legal entity in Connecticut and a change of the group's name from the Lighthouse Trust was not properly executed.

Sheehan also argued that bankruptcy code requires a property with so many claims against it to have at least three petitioners to force it into Chapter 11, rather than the just the one that filed. He pointed out that the bankruptcy petition was filed by Plummer rather than by a licensed attorney, as required by law.

In addition, he said Sheehan's brief said the value of Lighthouse Inn has declined from $2.9 million to $1 million in the year it has been closed. That's about half the amount the Business Loan Center is owed.

Sheehan had asked that the Chapter 11 petition be dismissed so that Lighthouse Inn assets could be immediately liquidated.

Chief Judge Dabrowski agreed with Sheehan and ordered the Lighthouse Group of Connecticut not to file an involuntary petition against McGrath Hotels for at least a year, unless it is represented by a licensed attorney. He also ordered that a filing by Lighthouse Group in the next two years would not trigger an automatic further delay of foreclosure proceedings.